Qualifying for a home loan these days isn’t easy and requires extensive documentation as well as some available cash. But know that some of your financial costs may very well be tax-deductible, so be sure to keep all receipts and obtain detailed accounting from your mortgage lender regarding all costs paid out of your pocket once you close the deal.
Here are five things you’ll need to qualify for a home loan:
1. Solid financial documentation. Get together all of your available financial documentation for mortgage processing. “No doc” loans are virtually non-existent; you must now provide copies of tax returns, tax wage forms, paystubs, banking statements, investment statements and any other information that can substantiate your ability to pay for a mortgage. Also, keep in mind that your lender will check your credit score at least once during the processing phase of your home loan; people with poor credit issues tend to have a much harder time qualifying for a mortgage now due to national economic troubles.
2. A down payment. These days, you must plan to make a down payment to get into a mortgage even if you have excellent credit and use a government-sponsored loan program. Since the late 2000s, prospective homeowners should expect to pay anywhere from 3.5 percent to 20 percent down to get any type of mortgage. A good guideline to keep in mind is the lower your credit score is, the higher your required minimum down payment will be.
3. Homeowner’s insurance. You must have homeowner’s insurance to protect both your investment and your mortgage company’s interests. If you bought a condominium unit, then you also might be required to purchase hazard insurance just in case something goes wrong at the condo complex itself. Homeowners should plan to pay about $3.50 per $1,000 of the home price annually; the average annual homeowner’s insurance policy cost as of 2010 was $744, according to the Federal Reserve.
4. Closing costs. You’ll also pay closing costs ranging from three percent to six percent depending upon your agreements with both your lender and home seller, according to the Federal Reserve. Closing costs cover the fees associated with industry-standard mortgage requirements such as appraisals, legal paperwork and home inspections. Application fees and loan origination fees can also be lumped into required closing costs. People with lower credit scores usually must pay higher closing fees; also under federal law, your lender must give you a copy of your credit report when closing your mortgage deal.
5. Payment of personal property taxes. Local governments usually charge personal property taxes for homes; some lenders require you to place the planned payment into an escrow account before closing your mortgage deal. The amount you must pay annually depends upon your jurisdiction of residence; also, some local governments charge title transfer and recording fees. Your initial personal property taxes and government fees can reach as much as three percent of your total home value.
For more information about homeownership, check out Quizzle.com, where you’ll get free home loan recommendations and access to a Credit Personal Trainer to help you whip your credit into shape. Or if you’re ready to talk about your options now, call 888-664-1371 to speak with a Quicken Loans Home Loan Expert.
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